One would not have any gold. One would just have rock: QBCC mining works exemption clarified

In Brief

• The Supreme Court of Queensland has recently provided clarification on the scope of the “construction work in mining” exclusion under the QBCC Act.
• The case involved a dispute between Sun Engineering (Qld) Pty Ltd and Ravenswood Gold Pty Ltd over the recourse to, and retention of, a bank guarantee for an alleged overpayment of over $10 million.
• A key issue in the case was whether Part 4A of the QBCC Act applied to the contract, this required the determination of whether the contract was a “building contract” or excluded as “construction work in mining”.
• The Court found that the work performed by Sun was “construction work in mining” given the physical proximity of the construction work to the extraction of the ore, and due to it being integral to the mining process as it involved construction of essential infrastructure for gold extraction and processing, adopting a broad and practical interpretation of the ‘construction work in mining’ exemption.
• This broad and practical interpretation of “construction work in mining” may allow for the exception to apply more frequently than previously considered by industry, and may result in work being able to be performed by contractors without a building licence.
• This development provides industry with further clarity on the breadth of the scope of this exemption, and in turn potential scenarios in which parties may or may not be entitled to rely upon the unlicensed performance of building work to bar potential claims – including under the BIF Act.
• Key takeaways:
  • For Principals/Project Owners:
    • Consider carefully at the outset of undertaking a construction project in mining contexts, which of the project contracts will constitute ‘construction work in mining’ (applying this new guidance) and therefore not require a licenced contractor to carry out such works, as opposed to those who will require a licenced contractor to perform the works.
    • This may have implications for defending security of payment claims (by creating additional defence options in certain cases), exercising valid recourse to contract security and the application of the QBCC regulatory regime to defective and incomplete works by contractors.
  • For Contractors:
    • Consider carefully before entering into construction contracts in mining contexts, whether the full scope of work under the Contract will properly engage the ‘construction work in mining’ exemption or not.
    • This may affect your licencing requirements for performing that work in Queensland, the availability of the security of payment legislation for payment disputes (in the event you are unlicenced but were required to hold a licence if the exemption is not engaged), and exposure to potential offences and regulatory action under the QBCC Act.

In Detail

In Queensland, there exists several key pieces of legislation which govern the building industry. The QBCC Act is one, which, together with the Queensland Building and Construction Commission Regulations 2018 (Qld) (“QBCC Regulations”), regulates building work, related services, contracts, and licensing requirements in Queensland. However, the regulatory provisions of such legislation do not apply to certain works which are explicitly excluded from the definition of “building work” under the QBCC Act.

The exclusion relating to “construction work in mining”, otherwise referred to as the mining works exclusion, is one such category of work that is explicitly excluded such that the provisions of the QBCC Act do not apply to that work.

A recent judgement in the Queensland Supreme Court, Sun Engineering (Qld) Pty Ltd v Ravenswood Gold Pty Ltd [2024] QSC 68, has shed some light on the application of the mining works exclusion under the Queensland Building and Construction Commission Act 1991 (Qld) (“QBCC Act”). Although this may provide clarity for parties seeking to rely on this exclusion, it brings to light potential uncertainties with regards to parties’ obligations regarding the QBCC Act.

Background

This case concerned Ravenswood Gold Pty Ltd’s (“Ravenswood”) recourse to, and retention of, a bank guarantee which it intended to use to recover its claim of alleged overpayment against Sun Engineering (Qld) Pty Ltd (“Sun”) amounting to over $10 million.

Sun was contracted by Ravenswood for construction work as part of the expansion of its gold mine near Townsville. The contract required Sun to provide two bank guarantees, amounting to approximately $1 million, as security for the performance of its obligation. Sun contended that any contractual entitlement of Ravenswood to retain the guarantee and to have recourse to it is governed by certain provisions of Part 4A of the QBCC Act which regulates certain building contracts.

A major consideration in this case was whether certain provisions in Part 4A of the QBCC Act applied to the contract so as to govern any contractual entitlement of Ravenswood to retain the bank guarantee and to have recourse to it. This turned on the issue of whether the contract was a “building contract” for the purpose of Part 4A of the Act, or whether it was “of a kind” that fell within the meaning of “construction work in mining” so as to exclude it from being a “building contract”.

Was the contract a “building contract”?

A building contract means a contract or other arrangement for carrying out building work in Queensland but does not include a contract exclusively for construction work that is not building work – with “construction work” given the definition provided in the Building Industry Fairness (Security of Payment) Act 2017 Qld (“BIF Act”).

It is well established that the extensive list of “construction work” described by the BIF Act does not include the drilling for, or extraction of, oil or natural gas or the extraction of minerals (including tunnelling, boring or constructing underground works for that purpose). However, this does not address ancillary work – such as the work conducted by Sun – that may otherwise be classified as construction work, and which could be subject of a building contract if that work is also building work.

As a result, the parties submitted opposing positions on whether the QBCC Act definition of the term “building work” applied to Sun’s contracted work. While the QBCC Act definition references descriptions of particular types of work, the concluding statement that the term “does not include work of a kind excluded by regulation from the ambit of this definition” is crucial.

When is work “of a kind” excluded by regulation from the ambit of the definition?

Of the 53 current exclusions, the key exclusion in dispute was the exclusion of ‘construction work in mining’. As have proven challenging for industry, the Act does not provide any further guidance as to how this phrase is to be interpreted.

In determining if this exclusion applied to the work being performed by Sun, the Court cited observations in Monadelphous[1] that the definition of “building work” does not require the work to match the item description exactly, but that the term “of a kind” meant a broad and practical interpretation of the exemptions was required.

The Court in Monadelphous 2[2] further stated that when particular works are ‘an integral part’ of the construction process – such as providing temporary supports or a site office – it makes sense to consider their close relationship to the final constructed works when considering if they too fall within the exemption. This interpretation allows a broad and practical application of the exclusion.

Did the work of Sun fall under the scope of Item 28 – “construction work in mining”?

The work performed by Sun under the contract aimed to increase the processing capacity of Ravenswood’s open cut gold mine and involved the installation of essential infrastructure for the purpose of crushing, grinding and leaching the ore to produce gold.

The QBCC Regulation does not define the terms “construction work” or “mining”, nor does it adopt definitions from other legislation for these terms. The Court therefore had to refer to previous cases to inform the meaning of both terms.

The general definition of “mining” as considered in Gonzo Holdings No 50 Pty Ltd,[3] was considered, and found to have developed from traditionally referring to underground work, to any type of excavation for extracting minerals, whether underground or in the open – “mining” had no fixed meaning and depended on context. In Morton Engineering Co Pty Ltd v Stork Wescon Australia Pty Ltd,[4] where the exclusion for “construction work in mining” was considered, the Court noted that trying to limit the term to just the activity of extracting a product from the soil was too narrow given that, for example with natural gas, the mining process would involve the transportation of gas from where it was extracted, to a storage facility where impurities may be removed.

With the assistance of the above two cases, the Court in Sun Engineering concluded that “Simply put, without the mining process that Sun constructed, one would not have any gold. One would just have rock”. Therefore, the work conducted by Sun was found to have constituted “construction work in mining” for the purpose of Item 28 of the QBCC Regulation.

Emphasis was placed on the Court’s conclusion being specific to the facts. Particularly, it was relevant that, for the purpose of separating gold from the mined rock, the structures constructed by Sun under contract were in close physical proximity to the area where the mining occurred. Additionally, the Court will examine the type of construction activities performed and their direct relationship to mining operations so as to assess how integral it is to mining operations, as well as the degree to which the construction work supports primary mining activities. Further, in the course of such construction, the provision of onsite offices and facilities for Sun’s staff was considered necessary for the project’s construction process and therefore also found to fall within the exemption. As these onsite offices and facilities were crucial for controlling the construction process, the Court, citing Monadelphous, found that a close connection existed between them and the end result of the construction process.

To quote Justice Applegarth:

“[144]  The Court is required to adopt a broad and practical interpretation of Item 28. Doing so, I find that the Work that Sun constructed were an essential part of the process of mining. It was integral to the process of extracting gold from the rock or ore from which it needed to be extracted. Absent the Work, Ravenswood would simply have been extracting rock, not mining gold. The process of extracting material from the ground and extracting gold from it was an integrated process that occurred on a mining site and on mining leases.”

QBCC Act implications of decision 

The Court’s clarification on the mining exclusion has an impact not only on the application of the security recourse sections of the QBCC Act. This is because other sections of the QBCC Act also turn on whether ‘building work’ is being performed or a ‘building contract’ to carry out building work is being entered into before those sections are engaged.  For example:

• (QBCC licensing) Subject to stated exceptions (for example, the head contractor licencing exemption (see link to our previous article)), it is unlawful to carry out building work unless the person holds a contractor’s licence of the appropriate class under the QBCC Act.[5]
• (Retention amount limits) building contracts with principals or special purpose vehicles as the contracting party are subject to a condition that at any time before practical completion of building work is reached, the total value of all retention monies and securities held are not more than 5% of the contract price for the contract. Additionally, retention amounts withheld from an amount payable under a building contract must not exceed 10% of the amount payable.[6]
• (Statutory defects liability period) if a building contract does not state one, the QBCC Act imposes a statutory defects liability period of 12 months.[7]
• (Power to require rectification of building work) under the QBCC Act, a consumer may request the QBCC to (or the QBCC can, under its own initiative) give a direction to rectify to a contractor if building work is defective or incomplete, or direct the contractor to remedy consequential damage caused to their property as a result of building work.[8]

This broad application of the “construction work in mining” exemption will have the effect of rendering these sections inapplicable to contracts for the performance of solely ‘construction work in mining’ as such contracts do not constitute ‘building contracts’ and such work does not constitute ‘building work’ in light of the exemption.

Security of Payment Act

It is important to note that the security of payment legislation in Queensland applies its own, narrower, mining works exemption to exclude more limited mining construction and operational activities from the scope of that act.

This means certain ‘construction work in mining’ that falls within the QBCC exemption but not the BIF Act exclusion for mining works can be both:

1. Not subject to the QBCC Act; and
2. Subject to the BIF Act for security of payment adjudication purposes.

This is because the BIF Act calls up the QBCC Act by stating that construction work under the BIF Act is deemed to include building work under the QBCC Act – however this does not mean that work that is not considered to be building work cannot be considered construction work for the purposes of determining if the engaging contract is a construction contract to which the Security of Payment regime applies. Importantly, the mining exclusions under the BIF Act is limited to ‘the drilling for, or extraction of, oil or natural gas, or the extraction, whether by underground or surface working, of minerals, including tunnelling or boring, or constructing underground works, for that purpose’ – a different standard to that addressed in Sun Engineering.

This could result in the regime’s suspension rights, strict timeframes, adjudication process, and potential liens on land for failures to pay contractors applying to the performance of similar work by contractors, even where the work is not classified as building work for the purposes of the QBCC Act. This conclusion is consistent with the finding in Thiess Pty Ltd v Warren Brothers Earthmoving Pty Ltd and Anor [2011] QSC 345, where it was held that clearing and grubbing, stripping topsoil and constructing dams and drainage in preparing a mining site was not captured by the mining exclusion under the BIF Act.

This highlights the importance of confirming if relevant work is both building work or construction work – as work that is not building work can still be construction work to which the BIF Act applies.

That said, the above ‘construction work in mining’ exemption under the QBCC Act may constitute an important consideration as to whether a contractor is able to avail itself of the security of payment legislation in Queensland, in certain circumstances.

This is because the performance of unlawful building work can be a defence to payment claims made by contractors under the BIF Act in certain circumstances. For example, in Dart Holdings Pty Ltd t/as A Dart & Co v Total Concept Group Pty Ltd & Ors, the builder performed a number of items of work for a lump sum of $1,377,410. The court held that the builder was licenced to perform all of the required works except for the awnings component of that work. While the builder argued that the severability clause of its contract should operate to remove the awning works only and leave the remainder of the contract unaffected, the lump sum nature of the contract necessitated the completion of all of the works specified under the contract for that lump sum and could not, in this contract, be apportioned to remove an amount connected only to the unlicensed works – if the builder were to receive payment of the lump sum it would be receiving compensation for unlicensed building work, and therefore would be in breach of s 42 of the QBCC Act. As a result, the Court found the builder was not entitled to receive any payment under the contract, including for the work that they were licensed for and the payment claim failed.

This is an important consideration for parties to bear in mind, as a contractor assuming the application of the mining exemption applies to relieve it of any requirement to hold a building licence may result in defences arising for the Principal to claims for payment – even where issued under the BIF Act – if that assumption is incorrect and the contractor was required to, and did not, hold a building licence. Legal advice should be taken as the facts of each case informed the availability of such a defence.

Conclusion

The findings of the Court in Sun Engineering provides industry with further clarity as to the scope of the mining exclusion under the QBCC Regulations to building contracts. This finding has industry wide implications:

Key Takeaways

• For Principals/Project Owners:
  • Consider carefully at the outset of undertaking a construction project in mining contexts, which of the project contracts will constitute ‘construction work in mining’ (applying this new guidance) and therefore not require a licenced contractor to carry out such works, as opposed to those who will require a licenced contractor to perform the works.
  • This may have implications for defending security of payment claims (by creating additional defence options in certain cases), exercising valid recourse to contract security and the application of the QBCC regulatory regime to defective and incomplete works by contractors.
• For Contractors:
  • Consider carefully before entering into construction contracts in mining contexts, whether the full scope of work under the Contract will properly engage the ‘construction work in mining’ exemption or not.

This may affect your licencing requirements for performing that work in Queensland, the availability of the security of payment legislation for payment disputes (in the event you are unlicenced but were required to hold a licence if the exemption is not engaged), and exposure to potential offences and regulatory action under the QBCC Act.

[1] Monadelphous Engineering Pty Ltd v Wiggins Island Coal Export Terminal Pty Ltd [2014] QCA 330.
[2] Monadelphous Engineering Pty Ltd v Wiggins Island Coal Export Terminal Pty Ltd [2017] 1 Qd R 190.
[3] Gonzo Holdings No 50 Pty Ltd v McKie [1996] 2 Qd R 240 (“Gonzo”).
[4] 2000 15 BCL 192.
[5] QBCC Act s 42.
[6] QBBC Act s 67K.
[7] QBCC Act s 67NA.
[8] QBCC Act Division 2 s 71J – 72B.